The new preferred shares offer returns of 4%. What would you like to know.


Preferred stocks are always attractive and individual investors may want to take a look.

The $ 400 billion preferred stock market offers around 4% returns on new issues from banks and real estate investment companies, while older securities with repayments expected in the next few years return 2%. at 3%.

While these yields are historically low, new trades can offer about double the rate on 30-year Treasury bonds, now at 2.05%. The big risk is that interest rates will rise.

These last months,

JPMorgan Chase

(ticker: JPM),

Wells fargo


Capital One Financial


American Express


Public storage


PNC Financial Services

(PNC), and

Vornado Real Estate Trust

(VNO) issued new favorite stocks, and their yields ranged from 3.4% to 4.45%.

“Things have been looking a little better from a valuation standpoint in the preferred market since the middle of the year,” said Frank Sileo, senior fixed income strategist at UBS. It highlights the higher preferential rates likely to be redeemed by issuers in the coming years, with a yield above 3%. Until a year ago, 5% returns were available in the preferred market.

“We continue to be constructive in the market,” said Anders Persson, director of investments for global fixed income at Nuveen, which manages several focused closed-end funds, including

Nuveen privileged and income opportunities

(JPC) and the $ 5.6 billion open fund

Nuveen Preferred Securities and Income

fund (NPSAX).

He cites bullish factors such as the growing financial strength of banks, which are major issuers, and weak supply, especially relative to the corporate bond market, which has seen an avalanche of issuance this year.

The $ 20 billion

the exchange-traded fund (PFF), the largest preferred ETF, trading around $ 39, returns 4.4% and has returned 5% this year. Nuveen Preferred & Income Opportunities closed-end fund trades around its net asset value and returns over 6%. This reflects leverage, which increases return but adds risk. The Nuveen Preferred Securities open-ended fund returns 4.7%.

Some $ 50 billion in new liens was issued in the first nine months of the year, but this was almost offset by buybacks.

Preferred stocks are a senior form of stocks and their dividends are generally fixed, like the interest rate on bonds. For individuals, dividends on bank and most preferred issues are taxed like dividends from common stocks, at lower rates than interest on corporate debt.

Most preferred issues are issued at $ 25 and trade like common stock on stock exchanges, typically the New York Stock Exchange.

Quotes make preferred bonds more accessible to individuals than corporate bonds, which are traded in the more opaque over-the-counter market. Historically attractive dividends and liquidity account for the popularity of preferred stocks with individual investors.

Teleprinter Recent price Yield
Capital One Financial 4.25% COF Pr N $ 25.05 4.24%
JPMorgan Chase 4.20% JPM Pr M $ 25.12 4.18%
New residential investment 7.00% NRZ Pr D $ 25.17 6.95%
Public storage 3.95% PSA Pr Q $ 25.00 3.95%
Vornado Real Estate Trust 4.45% VNO Pr O $ 24.82 4.48%
Wells Fargo 4.25% WFC Pr D $ 24.95 4.29%
IShares Preferred and Income Securities PFF $ 39.05 4.43%
Nuveen Preferred & Income Opps JPC $ 9.89 6.43%
Nuveen Preferred Securities & Income NPSAX 4.69%

Source: Bloomberg

UBS’s Sileo favors older preferred securities with rates above the market by around 5% and which are likely to be repurchased in the next few years. These offer more downside protection than new issues if interest rates rise. Preferred companies can usually be repaid by companies five years after issuance, which usually happens when rates go down and they can refinance, like homeowners at lower rates.

One of those shows is Wells Fargo’s 4.75% Favorite (WFC Pr Z), which trades around $ 26, a premium over face value, and offers a 3.8% yield up to ‘on its first repayment date in 2025. This exceeds the yield by less than 2% on bank debt of similar maturity.

The person likes

US Equity Investment Life Holdings

‘(AEL) 5.95% preferred (AEL Pr A), with a yield of around 3.1% until a possible redemption in 2024, and

Air lease

(AL) 6.15% preferred (AL Pr A), with a yield of 3.6% for potential repayment in 2024. The feature allowing issuers to redeem, or call, their preferences in five years is a downside because it limits the upside potential. And preferred securities go down considerably if rates rise due to perpetual maturities.

New favorite stocks could drop 10% or more if rates rise one percentage point.

Among new issues in recent months, JPMorgan has sold $ 2 billion of 4.20% favorite stocks (JPM Pr M). It is now trading around its face value of $ 25. The same goes for Wells Fargo’s $ 1.25 billion Preferred 4.25% (WFC Pr D), issued in July at $ 25 per share.

Capital One also issued 4.25% Preference (COF Pr N) at $ 25 which is trading around par. The same goes for 4.45% favorite Vornado’s $ 300 million (VNO Pr O).

New residential investment

(NRZ), a mortgage REIT, issued a 7% preference (NRZ Pr D) which is now trading at a small premium over its face value of $ 25. One of the reasons for the high return is that the company’s common stock is earning 9%.

Two hoteliers,

Pebblebrook Hotel Trust

(PEB) and

Summit Hotel Properties

(INN), sold favorites this summer with high yields of 5%.

Newer favorites offer relatively good returns, but investors have to take a lot of rate risk to get them.

Write to Andrew Bary at [email protected]

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